Preface|Foreword|Executive Summary|India's Macro-economic Outlook 2020|Growth

Drivers| State wise Analysis |Moving Ahead on the reform|Some Concerns to Growth|Launch
Event|
Editorial Team|Sponsors

A decade of more inclusive growth State wise analysis

In the current (current decade refers to period between FY11-FY20) decade, Indias success
story is set to enter a new era of inclusive growth. Significant progress will be visible in terms
of growth percolating to a larger section of the society, an aspiration that has largely remained
unaccomplished in the growth story so far. While it might take a longer time to experience
fully inclusive growth, the current decade would definitely see India rapidly progressing
toward achieving this dream.

Although the need for more equitable growth had been recognised since independence,
efforts toward driving benefits of the ongoing strong growth to the underdeveloped regions
rose significantly only in the past few years. Many states that have lagged in terms of
development are progressively altering their growth dynamics by focusing on changing the
politics surrounding economic policy-making. Striking examples of such changes are Bihar,
Orissa and Rajasthan.

The idea of inclusive growth seems to be taking

precedence not only politically but also on the
corporate front with significant emphasis being
placed on the untapped potential in rural India.
However, to unlock this potential, substantial
improvement in education and health services
coupled with financial inclusion would be
required. We believe that over the current
decade, India would see significant
improvement in infrastructure in areas such as
education and healthcare.

Another important issue that has inhibited Indias economic growth potential is increased
activity of Naxals. Naxalism affects vast swathes of 10 states in India, spread across about
180 districts. Many of these districts have huge development potential given their vast
mineral resources, forests and potential for power generation. Government of Indias (GoI)
proactive stance to combat this issue is likely to continue and may yield some amicable
solutions going forward. If these issues are resolved to some extent, significant development
benefits would accrue to the states that have been reeling under insurgencies of the Naxalites.

The thirty three (these districts include 10 districts in Jharkhand, 7 in Chhattisgarh, 6 in

Bihar, 5 in Orissa, 2 in Maharashtra, and 1 each in Andhra Pradesh, Madhya
Pradesh and Uttar Pradesh) left wing extremist affected districts identified by the home
ministry to tackle Naxal issues are in particular, likely to move faster on the development
path with implementation of Forest Rights Act and programmes such as the National Rural
Employment Guarantee Act (NREGA), National Rural Health Mission and Pradhan Mantri
Gram Sadak Yojana.

Political will to uplift the deprived would be a prerequisite for inclusion of the lowest
economic class as India moves ahead on the high growth path. Convergence in policies at the
centre and state government levels would further drive inclusive growth. We expect the
centre and state governments to continue to harness growthenabling policies and
increase their emphases on development of social infrastructure. As India moves ahead
on the economic and social development front, we anticipate significant improvement in
governance and reduction in corruption(empirical evidences have shown that greater
economic development reduces corruption (Corruption in America; by Edward L.
Glaeser and Raven Saks; October 2004)). We expect better implementation of government
policies and development projects as the economy moves toward 2020.

In this section, we attempt to identify potential Indian states that can contribute significantly
to Indias growth story during the current decade by building on the present reality. We
believe that Maharashtra, Gujarat and Andhra Pradesh (AP) will lead the development
sweeps in the country by 2020. Bihar, Madhya Pradesh (MP), Rajasthan, Orissa and Uttar
Pradesh (UP) (group of these five states together is generally referred to as BIMAROU states.
The concept of BIMARU has been modified to include Orissa), which have been considered
sick in terms of development, are expected to begin leveraging their huge potential in terms
of vast natural resources and manpower. While we expect these eight states to make
impressive contributions to Indias progress during the current decade, the role of other states
(not included in this report) should not be undermined.
BIMAROU, an age-old impression, to change

The acronym, BIMAROU (which means sick in Hindi), is used for Bihar, Madhya Pradesh,
Rajasthan, Orissa and Uttar Pradesh, which have lagged in terms of economic development
despite their huge potential. However, by FY20, this age-old impression about these states
would change. These states would start exploring their potential and enter the race to catch up
with the rapidly-developing states in the country. The gross state domestic product (GSDP)
contribution of BIMAROU states to incremental national GDP (at factor cost constant prices)
would increase to 26.3% during the FY11-FY20, as against 17.8% during the last decade
FY00-FY10.

Despite accounting for 34.7% of the total geographical area and 40.2% of the total population
of India, the BIMAROU states have lagged in terms of development, contributing only 21.0%
(FY10) to GDP. It is essential for the Indian economy to leverage the potential of these states
to sustain its high-growth trajectory.

State governments focus on development to yield results

Development of physical as well as social infrastructure is a pre-requisite for development of

these states. In the past few years, most of these states have witnessed a shift in focus of the
state governments towards improving infrastructure facilities within the state.
Bihar, MP, UP and Orissa-all with per capita income below the national average-seemed to
have focused more on development spending given that their respective development
expenditure (development expenditure includes the development components of revenue
expenditure, capital outlay and loans and advances by the state
governments.) to GSDP ratios rose during FY05-FY10 over FY00-FY05. In recent years,
there also has been be more emphasis by state governments on social sector spending as
reflected in the increase in social sector expenditure (social sector expenditure includes
expenditure on social services, expenditure on food storage and warehousing and rural
development under revenue expenditure, capital outlay and loans and advances of the state
governments) to GSDP ratios across the states during the period under review. However,
given the relatively poor state of development in these states, integrated efforts of the state
and central governments in this direction should be sustained to support growth.

Level of industrialisation within the BIMAROU states witnessing improvement

Over the past few years these states have experienced some improvement in industrialisation,
which is a positive development given its potential to generate employment in these highly
populated states. However, the momentum of private industrial investment did witness some
setback due to the advent of the global economic crisis, which in fact affected the entire
Indian economy. However, we expect that these states would witness gradual increase in
private investment going forward given the focus of the government on improving
infrastructure and facilitating industrial growth.

Thrust on improving agriculture productivity imperative

The economies of BIMAROU states are highly agrarian in nature, characterised by larger
dependence of majority of people on the agriculture sector. Hence, concentration on
improving the productivity in the agriculture sector and increasing farm income are
imperative to bring about an overall development in these states. Focus of these states on
improving irrigation facilities and gradual modification of the Agriculture Produce Market
Committee (APMC) Act coupled with a host of schemes initiated by the state as well as
central governments such as providing subsidy on power tillers are expected to yield results
in the long run.

Bihar Thrust on infrastructure to catalyse development

The Bihar economy has grown at a significant pace over the past five years, backed by
increased traction in construction, communication and trade, hotel and restaurant sectors. In
fact, the share of construction sector in Bihars GSDP surged significantly from 6.7% in
FY05 to 9.7% in FY10. The robust growth in construction can be attributed to higher
spending on infrastructure by the government.

Nevertheless, the state has a long way to go before it catches up with some of the leading
states in the country in terms of economic and social development. Bihars PCI is lower than
that of the district with the lowest PCI in Maharashtra. Almost 50% of the population in the
state lies below poverty line. However, recent initiatives of the state government to attract
investment such as focus on infrastructure development in the state, arranging NRI meets
outside the state, et al are likely to improve the investment climate in the state. A gradual
improvement in investment in the state is expected to drive growth for the next few years.

We believe infrastructure development and employment generation would be high on the

governments agenda in the current decade. The recent growth strategy adopted by the state
government for developing basic infrastructure would stimulate economic growth. Increased
mobilisation of resources for development purpose, which has been instrumental in bringing
about growth in Bihar, is expected to continue and would yield results in the long run. While
the significant infrastructure gap in Bihar indicates underdevelopment of the state, it also
underscores the huge potential for infrastructure investments.

About half of the villages in Bihar do not have all weather roads. The state has a total
road network of 82959 km of which almost 45% comparise of un-laid (kutcha) roads.
 Per capita power consumption in the state is around 100 units, versus 717 units for the
whole country (2008). The percentage of households electrified was only 10.3% in
Bihar, significantly below 55.8% at the national level.

Tele-density levels in Bihar (33.8%; September 2010) are amongst the lowest in India.

We expect investments in the infrastructure sector to increase substantially going forward.

The state governments thrust on building infrastructure, a major impediment in Bihars
progress so far, would drive industrial development in the state.

Focus on road, power and irrigation

The state government is focusing significantly on improving the quality of national and state
highways as well as rural roads.
Robust growth in the infrastructure sector would contribute significantly to Bihars growth
during the current decade; the sector would offer significant employment opportunities in the
short to medium term and would also facilitate growth in other industries in the long run.

Focus on sustained services sector growth and industrial development essential

Bihars economy is primarily agrarian in nature. The agriculture sector accounts for almost
21.8% (FY10) of the states GSDP and is the primary source of income for majority of the
population. Thus, focus of the state government should be on improving manufacturing
industry within the state. This will not only aid the sustainability of the current growth
momentum but also generate employment opportunities for Bihar.

Significant scope for development of financial services

Although coverage of financial services has witnessed gradual improvement during the past
few years, the state ranks the lowest amongst the major Indian states both in terms of per
capita deposit and per capita credit. This largely underscores the huge potential for
development of financial services within Bihar.

Food processing and agro-based industries to see substantial growth

Bihars agro-based industry is expected to be a major growth driver for the economy,
engendering large-scale employment in rural areas and high returns for the farmers.
Development of this sector would unlock the potential in agriculture and related sectors, in
which Bihar has significant strength, by creating vital linkages and synergies between
agriculture and industry. Given the endowment of fertile soil and water resources in Bihar, we
see significant potential for agriculture development.

Bihar is the eight-largest food grain producer in the country.

It is the third-largest producer of vegetables and seventh-largest producer of fruits.

Total value of output of agro-based industries in Bihar is less than 1% of the national
output, despite the fact that the state produces about 10% of Indias total output of
common fruits and vegetables.
 Apart from the huge resource endowment, Bihar is also emerging as a fast growing
market for food products. As per the economic survey of Bihar, expenditure on food
accounts for as much as 65% of the total consumer expenditure of the state.
Moreover, at present the processed food market accounts for almost 45% of the total
food market of Bihar. The food consumption market of Bihar is likely to double to
around 830 bn by 2015 from the current 400 bn.

The strong agriculture raw material base indicates significant potential for agro-based
industries. According to the annual survey of industries, FY08, agro-based industries account
for 88.0% of the total value added of 11.6 bn of all industrial units. The food processing
sector is expected to grow rapidly in the state given that it is supply-rich and is seeing
significant improvement in infrastructure facilities. The Agro-Export Zone aims to cover 11
districts with an investment of US$ 2.6 mn to promote Lychee exports. It has an export target
of US$ 34 mn over the next five years and envisages to benefit ~10,000 farmers.

Development of Food Parks at Hajipur and Begusarai (sanctioned by the Ministry of Food
Processing Industry, GoI)which would include appropriate infrastructure such as cold
storage, cold chain, refrigerated vehicle and effluent treatment plantsis likely to aid the
agro-based industrys growth. The Export Promotion Industrial Park (EPIP) at Hajipur is
being developed with an investment of US$ 2.6 mn as a multiproduct export-processing zone
by the Ministry of Commerce & Industries, GoI, and the state government. Further, the Air
Cargo Complex, proposed to be adjacent to the Patna airport, aims to facilitate export of
fruits, vegetables, horticulture products, silk and other exportable items. The complex is
promoted by Bihar Industrial Area Development Authority and Airport Authority of India.

The state has begun to see increased investments in the food processing sector

Within the state, there are 41 projects in the food processing sector, at various stages
of implementation, involving an investment of 4.7 bn.

Up to October 2010, of the 398 proposals approved by the State Investment

Promotion Board (SIPB), 104 were for investment in food processing units.

Moreover, the focus of the state government on reviving the sugar industry is likely to aid
future growth of the food processing sector in general. According to the Economic Survey of
Bihar, the state government has received over 19 proposals for establishing of green field
projects with a total crushing capacity of over 100,000 tonnes/day and distillery capacity of
235 kiloliters/day. This is anticipated to create direct and indirect job opportunities of about
0.21 mn.
Madhya Pradesh Focus on building industrial infrastructure to aid industrial growth

The states mineral resources, land and human resources are significantly under-utilised. Its
GSDP grew by 7.1% during FY06-FY10, quite below the national average of 8.6%.
However, MPs strategic location coupled with huge endowment of natural resources
underscores the growth potential for the state.

With an expected increase in investment and several initiatives taken by the government of
MP the state is likely to witness significant improvement during the current decade. We
expect MPs GSDP to register sustained robust growth of around 12% (annual average)
during the current decade.
Industrial sector gearing up

Moreover, investment in the industrial sector is expected to aid MPs rapid growth during the
current decade. The state has begun to attract significant industrial investment in the past few
years. It is important to note here that the industrial sector in the state attracted a total
investment worth 141 bn during FY10 - this is equal to the investment made in the same
field till date since their incorporation. During FY10, 35 bn has been invested on 30
industrial units and investment worth 105 bn has been invested on Bina Refinery, which is
almost ready to commence commercial production.
Given the vast amount of mineral reserves in the state, mining activity is likely to gain
traction during this period.

Given the vast endowment of mineral resources in the state there exist huge potential for
developing the mining and quarrying industry in MP. The policies of the state, as envisaged
in the Mineral Policy of 2010, along with increase in industrial set-up are likely to aid future
development in this sector. We expect this growth momentum of the mining sector to gather
momentum during the next couple of years gaining support from conducive policy
environment and large number of MNCs conducting explorations in the state.

The number of industries set up in the state improved substantially during the past few years.
This is expected to continue given the governments thrust on development of industrial
infrastructure, including industrial areas, growth centers, and various industrial parks.
However, efficient implementation and management would determine the pace of
industrialisation.

Despite expected industrial development within the state, the services sector, which currently
accounts for around 47.2%, is likely to lead the growth going forward. The sustained high
growth in Banking & Insurance, Transport, Storage & Communication during the last three
years augurs well for the overall growth prospects of the State.
IT-ITES sector set for take off

During the past few years, the IT-ITeS sector in MP has witnessed significant progress. This
sector has emerged as an important contributor of exports from MP, contributing to almost
27% of MPs export. Focus of the government in developing use of information technology
for all round development as envisaged in the Madhya Pradeshs IT vision is likely to aid the
growth of IT-ITeS sector within the state. The state has one of the highest optical fiber
coverage in the country with more then 24,000 kms of optical fibre backbone covering all its
313 developmental blocks across 45 districts.

The development of proposed IT-SEZ and IT parks, which would create essential
infrastructure for the sector, is expected to fuel the growth in the state. Some of the proposed
investments in the sector are enumerated below:

21 IT-SEZs have been permitted in the state

Four Software Technology Parks (STP units) are proposed to be set up in Bhopal,
Indore, and Gwalior.

MOUs worth 77 bn with 20 companies for investment in IT sector in the state

TOURISM

MP has huge potential to emerge as a major tourist centre in India. The state government is
encouraging non-consumptive use of its huge forest area by promoting eco-tourism. Focus of
the state government on promoting tourism will help the tourism industry to witness
substantial progress during the next few years. This would also drive employment within the
state. In its Annual Plan FY11, the state government had proposed an investment of 0.9 mn
to impart training to guides at important tourist centres. Some of the major government
initiatives that would drive growth in this sector include the following:

The state government has shortlisted 18 major centres that attract a large number of
domestic and foreign tourists for comprehensive development.

It is also making concrete efforts to improve air connectivity between MP and other
Indian states.
 The state has taken initiatives to promote eco and adventure tourism and is also keen
on medical/herbal tourism in association with private parties.

Efforts are being made to prop up infrastructure related to the tourism industry.

The state government has proposed an outlay of 250 mn in Annual Plan FY11 for
the tourism industry.

Focus on infrastructure development to aid growth in industry as well as tourism sector

Lack of proper infrastructure facilities has been one of the major impediments in the
development of the state during the past few years. With the government focused on building
basic infrastructure in association with the private sector, major bottlenecks in industrial
development are likely to peter out gradually.
Focus on augmenting irrigation facilities, which has been one of the major impediments in
agriculture development, would aid in sustaining growth in the agriculture sector. Agriculture
development within the state would be a prerequisite for reducing poverty levels, given that a
significant proportion of the population depends on agriculture for income.

Rajasthan Rapid industrialisation to support growth

Rajasthan - widely known for its cultural heritage - has embarked on the path of economic
progress during the past few years. The state achieved a high faster growth rate of close to
6.9% during the second half (FY06-FY10) backed by robust performance of services and
industrial sectors. While the share of agriculture to GSDP witnessed a sustained decline over
the years, it still remains the backbone of the state given that it provides sustenance to a large
portion of its population.
Industrialisation to see significant boost during the current decade

Rajasthan has a huge potential for mining, as it has huge reserves of various minerals.

State government policies such as the Investment Incentive Policy (2003), Cluster
Development Programmes, etc, have been instrumental in attracting investment into the state.
The new Industrial and Investment Promotion Policy 2010 (Investment in terms of Industrial
Entrepreneur Memoranda (IEMs) filed, Letters of Intent (LOIs) issued and Direct Industrial
Licences issued since November 2003), which seeks to achieve a quantum improvement in
the various critical components of development such as land, infrastructure, skill-pool, policy
environment and investor experience is expected to further enhance the investment
environment in the state and catalyse industrial development

The attempts of the state government to strengthen the Single Window System by
formulating a Single Window Act may yield results in the next few years and facilitate
industrial development.

Certain centrally-sponsored schemes such as ASIDE schemes and establishment of

growth and mini-growth centres are aimed at strengthening industrial infrastructure in
the state.

Certain special parks such as agro food parks, Japanese Park at Neemrana and Stone
Park at Dholpur have been established.

Rajasthan Financial Corporation (RFC) is providing financial support for setting up

new industries and expansion and renovation of existing industries.

The Rural Non-Farm Development Agency (RUDA) is working toward creating more
avenues of employment in the rural non-farm sector, upgrading the standard of living
of rural artisans and helping them gain access to the market and latest technologies.

Progress in DMIC, 36% of which falls in Rajasthan, will significantly boost industrial
development in the state. Development of western Dedicated Freight Corridor (DFC)
is also likely to attract investments.
Developing infrastructure to aid development

Rajasthan saw significant increase in investments in the power sector over the past few years.
Increased focus on the transport sector

The planned outlay for the transport sector has increased substantially in the current plan
period. The governments focus on development of transport is likely to aid overall
development of the Rajasthan economy in general and tourism sector of Rajasthan in
particular.
Various schemes such as the Missing Link Project and Central Road Fund are aimed at
constructing new roads to link all villages in the state.

During FY09, 1,294 villages were connected under the Pradhan Mantri Gram Sarak
Yojana (PMGSY).

The Rajasthan Mega Highways Project (I), which was being implemented by the
Road Infrastructure Development Company of Rajasthan Ltd (RIDCOR), aimed at
improving and maintaining 1,053 km of roads and involving an investment of US$
326 mn has been completed. This will drive industrialisation in the state. Investment
in construction of roads and power would not only augment infrastructure facilities
within the state, but also generate employment, which is considered as a serious threat
to the Rajasthans economy.

Tourism to support growth

During 2010, the state received about 1.3 million foreigners and 25.5 million domestic
tourists. Despite some moderation in growth of tourist arrivals, the future of the tourism
industry seems quite promising backed by major policy initiatives by the state government.
Trade, Hotels & Restaurant account for almost 14.1% Rajasthans GSPD. The focus on
tourism development and improving infrastructure facilities would only fuel the growth in
these industries going forward.

Orissa - Moving towards more sustained growth

Orissas GSDP grew at a robust pace over the past few years, reflecting the turning point in
its growth story. Robust growth in both the industry and services sectors has been
instrumental in the recent improvement in the states economic growth. The emphasis of the
state government on leveraging its abundant mineral and other resources and promoting
maximum value addition to create employment opportunities within the state have been and
will continue to be an important growth driver. Moreover, anticipated speedy clearances for
major projects is likely to help the state to leverage its full growth potential in the current
decade.

Vast mineral endowment in the state to drive growth

Orissa is endowed with vast mineral deposits
such as coal, iron-ore, manganese ore,
bauxite, and chromate. The policies and
initiatives of the state government have been
aimed at leveraging these abundant minerals
and other resources and bringing about
strong value addition thus creating
employment opportunities in the state.

Significant investments in the metals

industry in the past few years augur well for
the states manufacturing sector. According
to a report by Team Orissa, the state has
attracted investment of over US$ 200 bn
during the last few years out of which
majority of investments has been in the
manufacturing sector. Orissa is expected to
continue attracting huge investments,
especially in the metals sector. However, the
government would have to focus on the land
acquisition issue in the state. The state
government has signed 88 MOUs in various
industrial sectors such as steel, aluminum,
cement, oil refinery, auto ancillary, special
metals and power with total investments of
around 4414.2 bn. (as of May 6, FY10).

Proposed Paradeep investment region will attract investments

To make Orissa an important hub for domestic and international markets in the chemical and
petrochemical sectors, a Petroleum, Chemical and Petrochemical Investment Region (PCPIR)
is being proposed at Paradeep in a joint venture with Indian Oil Corporation Limited (IOCL).
Once it is fully developed, its annual turnover is expected to be 4230 bn with exports of
430.00 bn. Tax revenue of nearly 420.00 bn would be generated, boosting the regional
economy. Direct employment in the proposed PCPIR would be 0.2 mn with indirect
employment potential of 0.4 mn. Key benefits that would accrue for the state include:

PCPIR will significantly boost infrastructure in the state. This in turn would provide
an impetus to Orissas manufacturing sector and exports, which would result in
generation of employment opportunities in the future.

It will create an investment-friendly environment that would encourage production of

goods for the domestic and foreign markets.

Through PCPIR, Orissa, can reap the benefits of co-sitting, networking and greater
efficiency through use of common infrastructure and support services.

IT/ITES sector to emerge stronger

To develop a strong base in the IT-ITES sector, premier IT companies announced a number of
projects with an aggregate cost of more than 2.50 bn, pertaining to development of software
parks in Orissa. The table below provides details of the announced projects:

Currently, there are sevenprojects under implementation for computer software as well for
development of software parks. The aggregate cost of these ongoing projects is 17.8 bn.
The table below outlines the ongoing projects in the IT sector:
Slow progress on land acquisition issues could be a major risk

Land acquisition has emerged as a major issue in the state with major delays in the POSCO
investment deal. While the state government has taken steps at resolving the issue, the
progress has been very slow. Needless to say, to leverage this huge potential within the sector
the state and central governments should work towards finding amenable solutions to major
issues such as acquisition and rehabilitation. The recent draft of the land acquisition bill is a
step in the right direction and if implemented could provide fillip to investment in the state.

Uttar Pradesh (UP) to be the slowest within the BIMAROU states:

Uttar Pradeshs GSDP improved somewhat in recent years. However, growth remained below
the national average. Thus, its share in Indias GDP declined gradually from 8.7% in FY05 to
8.1% in FY10, although it continues to be the second-largest contributor to Indias GDP after
Maharashtra.

Sectoral composition of UPs GSDP reveals that the state has experienced a gradual increase
in the share of the services sector during the perivous decade. However, the state continues to
be agrarian in nature, given that agriculture contributes to around 23.9% (FY10) of the
statess GSDP and provides income to majority of the households. Sustained high growth in
financial services during the past few years also augurs well for growth prospects of the state.
Unbalanced growth

While the state has substantial potential, especially in terms of manpower, it has not been able
to significantly leverage its abundant resources. We expect UP to grow at an annual average
rate of 9.2% during the FY11-FY20 - the slowest pace among the BIMAROU states.
However, GSDP is expected to grow at an annual average growth of 10.6% during FY16-
FY20, a higher pace versus 7.8% during FY11-FY15. Major contribution is expected from
the Western region of the state, especially Greater Noida We expect the state government to
devise initiatives for overall development, seeking lessons from competitive states that are
marching ahead on development.
Infrastructure power and roads

Significant investments in the power sector and roads will drive growth over the next ten
years. Investments, however, would remain concentrated in the western region with major
upcoming industrial proposals situated here. Development of the Dedicated Freight Corridor
(DFC) in the Eastern region passing through UP will attract some investment.

Focus on infrastructure development would support industrial development in the state.

Major projects that would bring about upgrade in transport infrastructure include
Development of Feeder Road/Rail Linkages, passenger and goods terminal, Inter State Bus
Terminal (ISBT) and a Greenfield airport in Greater NOIDA. Moreover, mega road projects
such as the 1,047 kms long, 8-lane Ganga Expressway and Yamuna Expressway will improve
transportation.

Another major focus of the state is the power sector. Following major power projects are
under implementation in UP:

1,750 MW power plant and 740 MW gas-based power plant in Dadri and 250 MW
gas-based power plant in Greater Noida.

Bara 3x660 MW and Karchana 2x660 MW thermal power projects; these have been
handed over to private developers through a Case-2 bidding process (state
government facilitates arrangement of land, water, fuel linkage and all the statutory
clearances for the project) with SPVs for pre-project activities.

UP Power Policy 2009: Many new and bold initiatives and incentives were recently
announced to bring in private participation in generation, transmission and
distribution.

It is important to note that most of these projects are concentrated in the western part of the
state. It would be essential for the state government to carry out balanced development to
catch up with other fast-growing states in the country. Given the predominance of agriculture
in the eastern part of the state, the government can take initiatives to develop agro-based
industries in eastern UP. Moreover, concentrated efforts are needed for development of
infrastructure in remote areas of the state. This will help in efficiently mobilising agriculture
produce, which is expected to increase the remuneration of farmers.

Significant potential for development of the financial services industry

Although there has been gradual improvement in the penetration of the banking services in
the state there is a huge potential for further development given the significantly low levels of
credit off take and under penetration of these services in the rural areas. Underdevelopment of
the banking services can be gauged from the following:

Uttar Pradesh has 9595 scheduled commercial banks branches (FY09), merely 12% of
79056 at the all India level.

Credit deposit ratio (CDR) for the state in FY09 was only 42.06 as against the
national average of 72.58.

Credit off-take is lowest in the eastern part of the state reflecting low industrial and
commercial activity in this area.

Thus, there exists substantial potential for development of the banking services in the state.
We expect the services industry to flourish in the state during the current decade and be a
major driver of UPs economic growth.

Educating the youth - an imperative to sustain long term growth and development

UP is the most populous state in India, accounting for 16.8% of Indias total population.
Despite this, the literacy rate is amongst the lowest (~56.3% in terms of number of persons in
2001) in the country. Thus, the government should focus on improving the quality of its huge
manpower base by encouraging education (especially for females). High literacy levels would
result in skilled manpower in the state and increase demand for basic infrastructure facilities,
which in turn would put significant pressure on the government for pro-growth policies. The
state ranks among the first few to have successfully implemented an education for all policy.
Expenditure on education within the state has more than doubled, registering CAGR of
19.6% from 73.8 bn in FY05 to 180.8 bn in FY10. The state has made investments toward
enhancing the standard of education across different levels. UP has 16 general universities
and few world-renowned institutes such as the Indian Institute of Technology (Kanpur),
Indian Institute of Management (Lucknow), National Institute of Technology (Allahabad) and
Asian Academy of Film and Television (NOIDA).

The numerous initiatives being taken by the state government to improve infrastructure,
facilitate industrial development and improve skill levels are expected to yield benefits over
the long term. Moreover, the key lies in efficient and timely implementation of projects. It
will be very essential for the state government to concentrate and devise policies to reduce
the regional imbalance within the state for an all-round and sustained development of UP.

Maharashtra to move towards more balanced growth

Maharashtra saw substantial growth during the last decade, driven by robust performance of
the services and industrial sectors. Its income (State income GSDP at constant prices
(Adjusted with a base of 2004-05))grew more than double in the past decade, from 3,171 bn
in FY01 to 7,016 bn in FY10. The state contributed to almost 15.6% of Indias GDP in
FY10. However, Maharashtras, growth story so far, has been highly skewed.

While this indicates the governments failure in facilitating balanced development, it also
underscores significant potential in the state to fuel economic growth.

Conducive policies and efficient and timely implementation would be a prerequisite for more
balanced growth. With increasing competition from other developing states for private
investments, the Maharashtra state government intends to focus on improvement of
infrastructure and on underdeveloped regions in the next few years. Moreover, recent
initiatives being taken for overall development of agriculture as well as industries are
expected to yield results in the long run and assist in balanced development.

Agriculture growth essential for balanced development

Most of the underdeveloped districts in the state depend on agriculture and allied activities.
Thus, development of agriculture is the key to sustained growth of these districts.

The state government has initiated a number of projects for augmenting irrigation facilities in
the state.

According to the Economy Survey of Maharashtra FY05, there are almost 73 major
ongoing irrigation projects in the state, completion of which will enable the state to
utilise its water resources efficiently and increase water security for irrigation and
industrial and domestic users.
 A large number of these projects are being developed in the Vidarbha and
Marathwada region and have significant implications for farmers in these regions
once they are completed.

The increase in planned outlays for irrigation projects is a positive development.

Moreover, the government has launched a watershed mission to ensure that soil and
water conservation measures are implemented speedily in the un-irrigated areas.

While efforts are being made to augment irrigation facilities to support the agriculture sector,
delayed implementation and lack of funds have been major impediments. We expect the
government to accelerate completion of ongoing projects and allocate sufficient resources for
development. While the Maharashtra government has opened irrigation to the private sector, a
lot needs to be done to attract private investments. Involvement of the private sector is
expected to lead to resolution of issues in implementation.

Government policies to aid dispersion of industries to remote areas

Maharashtra is one of the leading industrial states in India. However, the spatial distribution
of industries has been skewed so far. The state government has taken policy initiatives such
as Co-operative Industrial Estates and Package Scheme of Incentives 2007, which are
expected to gradually aid industrial development in the backward districts. Special incentives
for development in the regions demarked as growth centers (D+) under the Package Scheme
of Incentives 2007 would be another growth driver. While the scheme, Package Scheme of
Incentives 2007 has expired on March 31, 2011, the state government is in the process of
drafting a new policy package for providing incentives to the industrial sector. The state is
facing stiff competition from other states such as Gujarat, Harayana, Tamil Nadu, Orissa and
Jharkhand in terms of attracting industrial investment. Therefore, we believe that the state
government is expected to provide significant incentive for industrial development especially
in the rural areas. We expect the new policy initiatives, which are on the anvil, would be
aimed at tackling wide regional disparities that exists within the state. Despite competition
from the other states, investment in Maharashtra has been on an upswing. Total 796 industrial
projects including Foreign Direct Investment (FDI) projects with an investment of 1,512.09
bn and proposed employment of 225,710 were approved during September, 2009 to August,
2010. During the same period, 36 projects with an investment of 86.73 bn and employment
potential of 9,458 were commissioned.

The industrial infrastructure being developed through SEZs in the backward regions by
MIDC would play a crucial role in development of these areas. Almost 25 SEZs have been
notified and approved in the Marathwada and Vidarbha district of Maharashtra.
One of the major projects that would play a crucial role in development of the Vidarbha
region is the Multi-Modal International Cargo Hub and Airport (MIHAN) project being
developed in Nagpur. The MIHAN project comprises of two parts: An international airport
that will act as a cargo hub and an SEZ with a residential zone. This is one of Indias largest
aviation projects and it should strongly boost the state economy, especially the aviation and
infrastructure sectors. The MIHAN project aims to provide services to 14 mn passengers and
handle 0.87 mn tonnes of cargo and is expected to generate revenue of 52.80 bn by 2035.
While the project has a high potential for development, the progress has been extremely slow
so far, with the SEZ project failing to take off at the expected pace. Besides the proposed
international airport at MIHAN, the state government has also proposed to set up an
additional airports at Navi Mumbai, Yavatmal, Nanded, Latur, Osmanabad, Baramati,
Kolhapur, Ratnagiri and Sindhudurg.

Focus on power, a major growth driver

Despite having the largest installed power capacity, Maharashtra faces the highest power
deficit in India.
Substantial scope to augment demand for services sector

The services sector contributes to almost 62% of the states GSDP in FY10. It recorded
double digit growth over the past few years. However, there is significant scope for
development of services. As the industrial and agriculture sectors continue to see further
progress, demand for services is likely to increase. A lower rural telecom density level
indicates high potential in the state for development of the telecom industry.

Moreover, while Mumbai is considered to be the financial capital of India, many districts in
Maharashtra are secluded in terms of availability of financial services. Almost 14 districts in
the state have less than five bank offices per lakh of population. We expect the services sector
in Maharashtra to cater to this huge demand potential in the state and continue to grow
robustly during the current decade.

Gujarat to emerge stronger and be a major contributor to Indias GDP

During the last decade, Gujarat emerged as one of the leading industrial states and an
investment destination. The state accounted for almost 11.1% of Indias industrial output
(including mining) during FY10. Gujarat recorded an annual average growth of 10.3% during
the second half of the last decade. Conducive investments and industrial policies of the state
government have been instrumental in the states progress. Gujarat is expected to continue
with its high growth momentum and achieve sustained levels of around 10.5% during FY11-
FY20. By 2020, Per Capita Income (PCI) of Gujarat is expected to surpass that of
Maharashtra. Moreover, consumption expenditure is set to rise with increase in PCI.

Industrial and infrastructure investment to drive sustained growth

High growth in the state would be largely driven by huge investments. The state government
would continue to facilitate industrialisation by identifying opportunities and creating an
environment for investments. This would help the state position itself well, to sustain its
growth momentum and generate employment.

Moreover, projects such as the Delhi-Mumbai Industrial Corridor (DMIC) and the Dedicated
Freight Corridor (DFC) present an opportunity for the state to leverage its strengths and
facilitate future industrial growth. Petroleum, Chemical and Petrochemical Investment
Region (PCPIR) in Dahej is another important project that is likely to attract huge
investments in the region.
Furthermore, the Vibrant Gujarat Global Investors Summit has been successful in attracting
investments. During the Vibrant Gujarat Global Investors Summit 2011, in all 7936 MoUs
were signed/announced in different major sectors with total proposed investment of
20830.0 bn and new job opportunities for a large number of people in the state.

Development of irrigation facilities is expected to reduce volatility in the agriculture

sector

The state has seen significant volatility in agricultural output owing to its dependence on
rainfall. Irrigation systems in the state are relatively under-developed. We expect this scenario
to change significantly as the irrigation network from the Narmada River project is expanded.

The Sardar Sarovar Project, which is expected to be completed by the middle of the current
decade, will provide annual irrigation benefits to an area of ~18.45 lakh hectares spread over
73 talukas of 15 districts in the state. The network will help in stabilising agricultural
production by providing access to water to large parts of South Gujarat and eventually,
Saurashtra. Further, the state governments initiatives such as Krushi Mahotsav and soil
health cards to encourage precision farming and increase awareness among farmers are likely
to improve agriculture productivity in the state.

Share of services in GSDP set to rise

We expect robust growth in services in the last few years to continue; its share in the states
GSDP would increase further. The robust growth in the industrial sector is likely to hold up
demand for services in the state.

The governments initiative to develop the Gujarat International Finance Tec-City (GIFT)
will help the state scale up finance and technology related services. The knowledge corridors
project proposes to create universities and centres of excellence in various disciplines. This
would drive growth in the services industry and increase supply of skilled manpower. Further,
the proposed medical townships are likely to be a reality by 2020; they will provide medical
facilities and learning centres and help the state emerge as an attractive destination for
medical tourism. As Gujarat continues to develop, demand for financial services, logistics
and entertainment would rise significantly, stimulating growth in the services sector.

Focus on infrastructure as envisaged by the BIG 2020 plan would stimulate growth

Blueprint for Infrastructure in Gujarat 2020 (BIG 2020), is an integrated plan for the states
infrastructure development, which aims to capitalise on the opportunities being thrown up by
various developments at the national as well as at the state level. Noting the huge investment
taking place within the state and expected investment in the form of the Dedicated Freight
Corridor (DFC) and the Delhi Mumbai Industrial Corridor (DMIC); the proposed six Special
Investment Regions (SIR) around DMIC, the state government has rightly stepped forward to
provide world class infrastructure in attempt to stimulate future growth and overall
development of the state.
The huge investment envisaged by the state government under the BIG 2020 plan if
implemented efficiently could provide a major fillip to the growth prospects of the state.

Andhra Pradesh Attracting investment to drive future growth

Andhra Pradesh (AP) saw sustained growth over the past few years, backed by robust
performance of the industry and services sectors owing to a conducive policy environment.
AP recorded annual average growth of 8.7% during FY06 to FY10, and is expected to grow
at 9.9% during FY11-20.
Much of the investment growth within the state is expected from the industrial sector which
contributes to around 25% of the APs GSDP in FY10. The state is expected to move faster in
terms of industrialisation given huge investments expected in the state.

As of September 30, 2010, the state received investment intentions (IEMs) for 6,910
proposals with an investment of 5,469.04 bn to provide employment to 11,72,196
persons. Out of the above, 3,012 proposals have gone into production and another
1,579 proposals are in initial stages of implementation with an investment of
2,788.69 bn providing employment to 29,0869 persons.

82 Mega projects (projects with investment of more than 1.00 bn are called mega
projects)with a total investment of 831.42 bn are under active implementation.

211 Mega projects with a total investment of 2591.26 bn are in initial stages of
implementation.

GoI has sanctioned six Integrated Infrastructural Development Centre (IIDC) units in
AP, which would facilitate setting up of industries in rural/backward areas and
provide stronger linkages between agriculture and industry in the state.

GoI has approved 113 SEZs in AP. Of this, 74 are notified in the gazette of GoI, of
which 27 are already operational.

The AP government has decided to attract major investments, both domestic and
foreign, by establishing an integrated Petroleum, Chemicals & Petrochemical
Investment Region (PCPIR) covering Visakhapatnam, Kakinada and Rajahmundry.
AP stepping up efforts to attract foreign investments
Mining industry to provide strong support

AP has been leveraging its strong mineral resources to support its overall development.

Given the vast reserves of minerals and initiatives taken by the state government, we
expect significant development in the mining industry in the state.

The initiative of Andhra Pradesh Mineral Development Corporation (APMDC) to

encourage private participation in joint ventures for investment in mineral
exploration, exploitation and development of mineral resources are likely to aid
development in the sector. APMDC has already initiated investment proposals in
bauxite, beach sand and granite.

IT to continue supporting growth

The IT sector has emerged as an important growth driver in AP, contributing to half of its
exports. Strong support from the state government and availability of skilled workers are
expected to provide further impetus to this sector during the current decade. Notable
developments that are likely to support development of the industry are:

Relocation of Infosyss headquarters from Bangalore to Hyderabad for development

of various software products and services.

A plan to develop a hard parkunderway for manufacture of Silicon Chips.

SEZs a key driver for APs IT industryPremier IT companies such as TCS,

Cognizant and Wipro are moving toward establishing SEZs in Adibatla in
Ibrahimpatnam mandal.

The AP governments most ambitious project is development of the Andhra Pradesh

Knowledge Corridor. It will be a large area equipped with the infrastructure required
to foster research and development (R&D) of a new set of IT enabled services, many
of which will facilitate commercialisation of newly-developed technologies. The
Knowledge Corridor will provide an investor-friendly environment that will attract
large corporations to set up their R&D centres here and nurture entrepreneurship.